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"Making book against oneself," the Independence Axiom, and Nonlinear Utility Theory

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  • Green, Jerry

Abstract

An individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty. This paper examines the restrictions that can be placed on an individual's preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original. The relationship of these axioms to the independence axiom of von Neumann and Morgenstern and to the quasi convexity of preferences in the wealth distribution are explored.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3203640/green_makingbook.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3203640.

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Date of creation: 1987
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:3203640

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  1. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, Elsevier, vol. 33(2), pages 199-231, August.
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Cited by:
  1. David Laibson & Leeat Yariv, 2007. "Safety in Markets: An Impossibility Theorem for Dutch Books," Levine's Bibliography, UCLA Department of Economics 122247000000001746, UCLA Department of Economics.
  2. Jürgen Eichberger & David Kelsey & Burkhard C. Schipper, 2007. "Ambiguity and Social Interaction," Working Papers, University of Heidelberg, Department of Economics 0443, University of Heidelberg, Department of Economics, revised May 2007.
  3. Grant, S & Kajii, A & Polak, B, 1997. "Intrinsic Preference for Information," Papers, Australian National University - Department of Economics 323, Australian National University - Department of Economics.
  4. Volij, Oscar, 2002. "A Remark on Bargaining and Non-Expected Utility," Staff General Research Papers, Iowa State University, Department of Economics 10128, Iowa State University, Department of Economics.
  5. Alexander Ludwig & Alexander Zimper, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 04060, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  6. Border, K.C. & Segal, U., 1997. "Coherent Odds and Subjective Probability," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9717, University of Western Ontario, Department of Economics.

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